DBRS Confirms MLMI, 1999-Canada 2; All Trends Stable

DBRS has today changed the trend of Merrill Lynch Mortgage Loans Inc., Series 1999-Canada 2 Class F to Stable from Negative and confirmed the ratings as follows:

-- Classes A-2, B and interest-only Class X-1 at AAA
-- Class C at AA (high)
-- Class D at “A”
-- Class E at BB (high)
-- Class F at BB (low)

All trends are now Stable.

The change in the trend of Class F is a reflection of Prospectus ID#4 (Portage Place, previously 7.6% of the pool) refinancing at its maturity on December 1, 2008. Portage Place had long been a loan of concern for DBRS as noted on its Hotlist in previous Performance Updates. In addition, Prospectus ID#11 (Dufferin Plaza, previously 4.3%), also a Hotlist loan, has repaid from the pool. The remaining 28 loans in the pool have an average debt yield above 25%, with only one loan below 14%. A debt yield in excess of 12% is expected to help a loan’s refinance prospects. All but Prospectus ID#42 (Whitby A&P, 0.6%) have a maturity date in 2009.

Three loans in the transaction have defeased, totaling 18.8% of the transaction balance. All loans are current.

The only loan with a debt yield below 14% is Prospectus ID#6 (Robertson House, 6.9%). The loan is secured by a 116-unit retirement home located in Nepean, Ont. According to the servicer’s operating statement analysis, the property is operating at an insufficient level to repay debt service. The debt service coverage ratio (DSCR) for YE 2007 was 0.54x. However, the property has been operating at below 1.0x DSCR since 2004 and has remained current on its debt service payments throughout. The 2007 servicer site inspection notes that the borrower is renovating the property, which may explain the prolonged sub-par performance. The loan per unit for this property type of $68,000 is considered moderate and the loan also benefits from full recourse to its sponsor, Retirement Residences REIT (which was acquired by Public Sector Pension Investment Board in 2007).

DBRS notes that commercial property owners are having more difficulty arranging financing in today’s market than they have experienced in years past. Therefore, requests for maturity date extensions are expected in this transaction as the constraints on the current lending environment is expected through much of 2009 and it is unlikely that the classes will be repaid on or prior to the Scheduled Maturity Dates. DBRS rates to the Final Rated Maturity and not the Scheduled Maturity Date. The Final Rated Maturity of this transaction is September 15, 2031.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is CMBS Methodology which can be found on our website under Methodologies.

This is a Structured Finance rating.